Question

Use the Solow-Swan model to explain what would happen to steady
state capital per

effective worker resulting from:

a. A decrease in the population growth rate.

b. An increase in labor productivity.

c. An increase in the investment share of GDP.

Answer #1

(A) In the Solow model, an decrease in the population growth rate decreases the growth rate of aggregate output but has no permanent effect on the growth rate of per capita output. A decrease in the population growth rate decreases the steady-state level of per capita output.

(B) Increase in Productivity doesnt impact the steady state
capital per effective worker. Solow Model considers productivity
improvements as an **'exogenous' variable** – they are
assumed to be independent of the amount of capital investment.

(C) An increase in the investment share of GDP: In the Solow growth model, if investment exceeds depreciation, the capital stock will increase and output will increase until the steady state is attained.

2. The Solow-Swan Model
a) Consider an economy that is initially in a steady state
equilibrium. Assume that in this equilibrium it has a saving rate
of 50 per cent and a depreciation rate of 2 per cent. Further
assume that the population is constant and that the level of output
produced can be represented by the following production function: Y
= AKαL 1−α where A = 1 and α = 0.5. Use the Solow-Swan model to
determine the level...

In the solow growth model, the steady-state growth rate of
output per worker is ________
(a) equal to the sum of the rate of technological progress plus
the rate of population growth
(b) greater than zero
(c) equal to zero
(d) less than zero

Suppose an economy described by the Solow model is in a steady
state with population growth n of 1.8 percent per year and
techno- logical progress g of 1.8 percent per year.Total
output and total capital grow at 3.6 percent per year. Suppose
further that the capital share of output is 1/3. If you used the
growth- accounting equation to divide output growth into three
sources—capital, labor, and total factor productivity—how much
would you attribute to each source?

QUESTION 1
Suppose an economy can be characterized by a Cobb-Douglas
production function with capital share of 1/3, and A =
200. The investment rate is 0.12 (12%), the annual rate of growth
of the labor force is 0.02 (2%), and the annual depreciation rate
of capital is 0.04 (4%). According to the Solow growth model, this
economy's steady state capital/labor ratio (capital per worker,
k) is
4,000
8,000
10,000
12,000
None of the above.
QUESTION 2
The steady state...

What is the key equation that determines capital per worker in
the steady state of the Solow model?

In the steady state of the Solow model, higher population growth
leads to a _________ level of income per worker
and _________ growth in total income.

Question #1: The Basic Solow Model
Consider an economy in which the population grows at the rate of
1% per year. The per worker production function is y = k6, where y
is output per worker and k is capital per worker. The depreciation
rate of capital is 14% per year. Assume that households consume 90%
of their income and save the remaining 10% of their income.
(a) Calculate the following steady-state values of
(i) capital per worker
(ii) output...

3. a. Consider a country that is at its steady-state level of
capital per worker. Now assume that this country receives a gift of
foreign aid in the form of capital. What should happen to
per-capita output levels and growth in the short-run and long-run
as a result of this aid? Use the Solow Model to explain your
answer.
b. Based on your answer what can you conclude about the
effectiveness of foreign aid in increasing growth among developing
countries?

1) In the steady state of the Solow model with technological
progress, which of the following variables is not
constant?
(a) capital per effective worker
(b) the real rental price of capital
(c) the real wage
(d) the capital-output ratio
2) The U.S. economy has more/less capital than at
the Golden Rule steady state, suggesting that it may be desirable
to
increase/decrease the rate of saving.
3) The purpose of exogenous/endogenous
growth theory is to explain technological progress. Some of these...

In the Solow growth model of an economy with population growth
and technological progress, the steady-state growth rate in output
per worker is equal to:
(a) zero
(b) the rate of technological progress g.
(c) the growth rate of population n plus the rate of technological
progress g. (d) the rate of technological progress g minus the
growth rate of population n.
In the Solow growth model of an economy with population growth
and technological progress, the steady-state growth rate...

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